Natural Gas Price Prediction – Prices Rebound Ahead of Inventory Report

Natural gas prices rebounded on Wednesday ahead of Thursday inventory report from the Department of Energy. Expectations are for a 163 Bcf decline for the 10^th week of the year according to Estimize. The average rate of withdrawals from storage is approximately 8% below the 5-year average while prices are approximately 10% below the 5-year average price. Using these matrix prices are clearly undervalued. The weather is expected to remain colder than normal throughout most of the mid-west and east coast for the next 6-10 days. The 8-14 day forecast shows that the weather will be warmer than normal.

Technical Analysis

Natural gas edged higher climbing 1%, moving up to resistance near the 10-day moving average at 2.83. Support is seen near the March low sat 2.76. Medium term momentum is neutral MACD (moving average convergence divergence) histogram is printing in the black with a downward sloping trajectory which points to consolidation. The fast stochastic is printing a reading of 61, which is also in the middle of the neutral range and reflects consolidation.

Inventory Levels are Below Normal

The Energy Information Administration will report its weekly inventory report on Thursday. The draw is expected to take inventories below the lower end of the average range for this time of year. The average rate of net withdrawals from storage is 8% lower than the 5-year average. According to the EIA, if the rate of withdrawals from storage matched the five-year average of 7.3 Bcf per day for the remainder of the withdrawal season, total inventories would be 1,172 Bcf on March 31, which is 464 Bcf lower than the five-year average of 1,636 Bcf for that time of year. The reason prices are not 10% higher is because expectations are for production to increase. The EIA currently estimate production to increase next month by 0.2% with most of the increase coming from South Dakota and New Mexico.